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Farmland prices: Boom or bubble?

Recent years have produced prices for both farmland and pasture land that reached unprecedented levels. Can the trend continue – or is it a real estate bubble in the making?

A new report from the American Enterprise Institute for Public Policy Research examines current patterns in price of land.

Alex J. Pollock, resident fellow at the American Enterprise Institute, says the current U.S. farmland market is showing patterns similar to the market bubble of the 1970s. Calling the event the “great U.S. farmland bubble of the 1970s,” Pollock notes that prices peaked in 1982 before real prices fell back to their level of 15 years earlier “while defaults and insolvencies escalated.”

Pollock, who spent 35 years in banking and was president and chief executive officer of the Federal Home Loan Bank of Chicago from 1991 to 2004, said, “Trends from the past two decades suggest we may have entered another such bubble. Real farmland prices have been climbing over the last 17 years and are now higher than at the peak of the previous bubble. Analysts and experts are reluctant to declare this a bubble, and plausible economic reasons for current prices have been proposed. But it is also plausible to imagine price dropping again.”

Specifically, Pollock says the Federal Reserve’s record-low interest rates have contributed to inflation in the market prices of farmland, and he believes when interest rates begin to rise, farmland prices may drop.